| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principles of Consolidation The consolidated financial
statements include the accounts of the Company and a subsidiary with a majority voting interest of 51.8% (48.2% is owned by non-controlling
interests) as of March 31, 2018 and June 30, 2017. In the preparation of consolidated financial statements of the Company, intercompany
transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of the subsidiary applicable
to non-controlling interests. Non-controlling Interest in a Consolidated
Subsidiary As of March 31, 2018, the
non-controlling interest was $930,418, which represents a $70,710 decrease from $1,001,128 as of June 30, 2017. The decrease was
due to the net loss of subsidiary of $146,580 for the nine months ended March 31, 2018, of which 48.2% was attributable to the
non-controlling interests. Segment Reporting Public companies are required
to report financial and descriptive information about their reportable operating segments. We identify our operating segments
based on how our chief operating decision maker internally evaluates separate financial information, business activities and management
responsibility. We have one reportable segment, consisting of the sale of wireless access products. We generate revenues from
four geographic areas, consisting of the United States, the Caribbean and South America, EMEA and Asia. The following enterprise-wide
disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements. The following table
contains certain financial information by geographic area:
Three Months Ended Nine Months Ended
March 31, March 31,
Net sales: 2018 2017 2018 2017
United States $ 6,414,074 $ 9,407,328 $ 21,813,370 $ 35,943,763
Caribbean and South America – 94,500 234,970 252,000
Europe, the Middle East and Africa (“EMEA”) 138,799 219,064 333,021 508,078
Asia 12,569 28,018 180,693 102,505
Totals $ 6,565,442 $ 9,748,910 $ 22,562,054 $ 36,806,346
Long-lived assets, net (property and equipment and intangible assets): March 31, 2018 June 30, 2017
United States $ 1,171,362 $ 1,209,050
Asia 52,535 120,367
Totals $ 1,223,897 $ 1,329,417 Use of Estimates The preparation of the consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could materially differ from those estimates. Fair Value of Financial Instruments The carrying amounts of
financial instruments such as cash equivalents, accounts receivable, accounts payable and debt approximate the related fair values
due to the short-term maturities of these instruments. We invest our excess cash into financial instruments which management believes
are readily convertible into cash, such as money market funds and certificates of deposit. Allowance for Doubtful Accounts Based upon our review of
our collection history as well as the current balances associated with all significant customers and associated invoices, we do
not believe an allowance for doubtful accounts was necessary as of March 31, 2018 and June 30, 2017. Revenue Recognition We recognize revenue when
persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured, and delivery
of products has occurred, or services have been rendered. Accordingly, we recognize revenues from product sales upon shipment of
the products to customers or when the products are received by the customers in accordance with shipping or delivery terms. We
provide a warranty for one year from the shipment date, which is covered by our vendors pursuant to purchase agreements. Any net
warranty related expenditures made by us have not historically been material. Under our sales return policy, customers may generally
return products that are under warranty for repair or replacement. Cost of Goods Sold All costs associated with
our contract manufacturers, as well as distribution, fulfillment and repair services are included in our cost of goods sold. Cost
of goods sold also includes amortization expense associated with capitalized product development costs associated with complete
technology. Capitalized Product Development Costs Our products contain embedded
software internally developed by FTI, which is an integral part of these products because it allows the various components of
the products to communicate with each other and the products are clearly unable to function without this coding. The costs of product development
that are capitalized once technological feasibility is determined (noted as Technology in progress in the Intangible Assets table)
include certifications, licenses, payroll, employee benefits, and other headcount-related expenses associated with product development.
We determine that technological feasibility for our products is reached after all high-risk development issues have been resolved.
Once the products are available for general release to our customers, we cease capitalizing the product development costs and any
additional costs, if any, are expensed. The capitalized product development costs are amortized on a product-by-product basis using
the greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross
revenues. The amortization begins when the products are available for general release to our customers. As of March 31, 2018, and
June 30, 2017, capitalized product development costs in progress were $100,000 and $360,148, respectively, and these amounts are
included in intangible assets in our consolidated balance sheets. During the three and nine months ended March 31, 2018, we incurred
$66,901 and $291,386, respectively, in capitalized product development costs, and such amounts are primarily comprised of certifications
and licenses. All costs incurred before technological feasibility is reached are expensed and included in our consolidated statements
of comprehensive income (loss). Research and Development Costs Costs associated with research
and development are expensed as incurred. Research and development costs were $744,794 and $892,430 for the three months ended
March 31, 2018 and 2017, respectively, and $2,641,526 and $2,589,889 for the nine months ended March 31, 2018 and 2017, respectively. Warranties We provide a warranty for
one year which is covered by our vendors and manufacturers under purchase agreements between the Company and the vendors. As a
result, we believe we do not have any net warranty exposure and do not accrue any warranty expenses. Historically, the Company
has not experienced any material net warranty expenditures. Shipping and Handling Costs Costs associated with product
shipping and handling are expensed as incurred. Shipping and handling costs, which are included in selling, general and administrative
expenses on the consolidated statements of comprehensive income (loss), were $177,623 and $220,998 for the three months ended March
31, 2018 and 2017, respectively, and $560,458 and $1,100,610 for the nine months ended March 31, 2018 and 2017, respectively. Cash and Cash Equivalents For purposes of the consolidated
statements of cash flow, we consider all highly liquid investments purchased with original maturities of three months or less to
be cash equivalents. Inventories Our inventories consist
of finished goods and are stated at the lower of cost or net realizable value, cost being determined on a first-in, first-out
basis. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders
on hand, and internal demand forecasts using management’s best estimates given information currently available. Our customer
demand is highly unpredictable and can fluctuate significantly caused by factors beyond the control of the Company. We may write
down our inventory value for potential obsolescence and excess inventory. As of March 31, 2018, and June 30, 2017, we have
recorded an inventory reserve in the amount of $148,900 for inventories that we have identified as obsolete or slow-moving. Property and Equipment Property and equipment are
recorded at cost. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance and repairs
are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as
follows:
Machinery 6 years
Office equipment 5 years
Molds 3 years
Vehicles 5 years
Computers and software 5 years
Furniture and fixtures 7 years
Facilities improvements 5 years or life of the lease, whichever is shorter Goodwill and Intangible Assets Goodwill
and certain intangible assets were recorded in connection with the FTI acquisition in October 2009, and are accounted for in accordance
with ASC 805, “Business Combinations.” Goodwill represents the excess of the purchase price over the fair
value of the tangible and intangible net assets acquired. Intangible assets are recorded at their fair value at the
date of acquisition. Goodwill and other intangible assets are accounted for in accordance with ASC 350, “Goodwill and Other
Intangible Assets.” Goodwill and other intangible assets are tested for impairment at least annually and any related impairment
losses are recognized in earnings when identified. No impairment was recognized during the periods ended March 31, 2018 and June
30, 2017. The
definite lived intangible assets consisted of the following as of March 31, 2018:
Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net
Intangible Assets
Complete technology 3 years 3.0 years 18,397 – 18,397
Technology in progress Not Applicable – 100,000 – 100,000
Software 5 years 2.5 years 277,918 229,773 48,145
Patents 10 years 6.3 years 58,391 6,186 52,205
Certifications & licenses 3 years 1.5 years 3,250,061 2,392,567 857,494
Total as of March 31, 2018 $ 3,704,767 $ 2,628,526 $ 1,076,241 The
definite lived intangible assets consisted of the following as of June 30, 2017:
Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net
Intangible Assets
Complete technology 3 years 0.5 years 2,402 2,002 400
Complete technology 3 years 0.7 years 6,405 4,804 1,601
Complete technology 3 years 3.0 years 18,397 – 18,397
Supply and development agreement 8 years 0.3 years 1,121,000 1,085,969 35,031
Technology in progress Not Applicable - 360,148 – 360,148
Software 5 years 2.7 years 239,398 216,829 22,569
Patents 10 years 7.0 years 58,391 4,693 53,698
Certifications
& licenses 3 years 1.9 years 2,698,526 2,080,895 617,631
Total
as of June 30, 2017 $ 4,504,667 $ 3,395,192 $ 1,109,475 Amortization
expense recognized during the three months ended March 31, 2018 and 2017 was $116,788 and $112,031 respectively, and during the
nine months ended March 31, 2018 and 2017 was $363,140 and $353,369, respectively. Long-lived Assets We review for impairment
of long-lived assets and certain identifiable intangibles whenever events or circumstances indicate that the carrying amount of
assets may not be recoverable. We consider the carrying value of assets may not be recoverable based upon our review of the following
events or changes in circumstances: the asset’s ability to continue to generate income from operations and positive cash
flow in future periods; loss of legal ownership or title to the asset; significant changes in our strategic business objectives
and utilization of the asset; or significant negative industry or economic trends. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset are less than its carrying amount. As of March 31, 2018, we
are not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired. Stock-based Compensation The Company’s employee
share-based awards result in a cost that is measured at fair value on an award’s grant date, based on the estimated number
of awards that are expected to vest. Stock-based compensation is recognized on a straight-line basis over the award’s vesting
period. The Company estimates the fair value of stock options using a Black-Scholes option pricing model. Transactions with non-employees
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty's performance
is complete or the date on which it is probable that performance will occur. Stock-based compensation costs are reflected in the
accompanying consolidated statements of comprehensive income (loss) based upon the underlying recipients' roles within the Company. Income Taxes The Company uses the asset
and liability method of accounting for income taxes. Accordingly, deferred tax assets and liabilities are determined based on the
difference between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for
the year in which the differences are expected to reverse. A valuation allowance is recorded to reduce the carrying amount of deferred
tax assets, unless it is more likely than not such assets will be realized. Current income taxes are based on the year’s
taxable income for federal and state income tax reporting purposes and the annual change in deferred taxes. The Company assesses its
income tax positions and records tax benefits based upon management’s evaluation of the facts, circumstances, and information
available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained,
the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement
with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more
likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. The Company classifies
interest and penalties associated with such uncertain tax positions as a component of income tax expense. As of March 31, 2018, we
have no material unrecognized tax benefits. We recorded an income tax benefit of $182,175 and $83,055 for the three and nine months
ended March 31, 2018, respectively, and an increase in deferred tax asset, non-current, of $180,537 and $82,268 for the three and
nine months ended March 31, 2018. The Tax Cuts and Jobs Act
(the “Act”) was signed into law on December 22, 2017. The Act includes a provision to reduce the federal corporate
income tax rate to a flat 21% effective for taxable years beginning on or after January 1, 2018. ASC 740 provides that deferred
tax assets and liabilities are to be measured at the enacted rate, which is expected to apply when the related temporary differences
are to be realized or settled, and the related tax impact is recognized through continuing operations in the period in which tax
legislation is enacted. Accordingly, the Company remeasured its deferred tax assets as of December 31, 2017, resulting in an approximate
$400,000 decrease, which was included as a component of the income tax provision recognized for the nine months ended March 31,
2018. Additionally, the Act requires
under Internal Revenue Code (“IRC”) Section 965 a deemed repatriation of post-1986 undistributed foreign earnings.
Under the provision, U.S. taxpayers are subject to a special tax on previously untaxed foreign income held in the foreign subsidiaries
in the tax year 2017. The Company has not performed a formal analysis to determine the post-1986 earnings and has insufficient
information to determine an estimate as of the date of the filing of this Form 10-Q. Accordingly, no provision has been
recognized with respect to the IRC Section 965 tax. Once the formal analysis is completed in connection with our fiscal
year end and the tax amount is determined, a provision adjustment may be recorded in the Company’s consolidated financial
statements. Earnings per Share Attributable to Common Stockholders Earnings per share is calculated
by dividing the net income by the weighted-average number of common shares that were outstanding for the period, without consideration
for potential common shares. Diluted earnings per share is calculated by dividing the net income by the sum of the weighted-average
number of dilutive potential common shares outstanding for the period determined using the treasury-stock method or the as-converted
method. Potentially dilutive shares are comprised of common stock options outstanding under our stock plan. Concentrations We extend credit to our
customers and perform ongoing credit evaluations of such customers. We evaluate our accounts receivable on a regular basis for
collectability and provide for an allowance for potential credit losses as deemed necessary. No reserve was required or recorded
for any of the periods presented. Substantially all of our
revenues are derived from sales of wireless data products. Any significant decline in market acceptance of our products or in the
financial condition of our existing customers could impair our ability to operate effectively. A significant portion of
our revenue is derived from a small number of customers. For the nine months ended March 31, 2018, sales to our three largest customers
accounted for 55%, 19% and 12% of our consolidated net sales, and 58%, 34% and 0% of our accounts receivable balance as of March
31, 2018. In the same period in 2017, sales to our two largest customers accounted for 67% and 30% of our consolidated net sales
and 78% and 15% of our accounts receivable balance as of March 31, 2017. No other customers accounted for more than ten percent
of total net sales for the nine months ended March 31, 2018 and 2017, and no other customers accounted for more than ten percent
of total accounts receivable as of March 31, 2018 and 2017. For the nine months ended
March 31, 2018, we purchased the majority of our wireless data products from one manufacturing company located in Asia. If this
manufacturing company were to experience delays, capacity constraints or quality control problems, product shipments to our customers
could be delayed, or our customers could consequently elect to cancel the underlying product purchase order, which would negatively
impact the Company's revenue. For the nine months ended March 31, 2018, we purchased wireless data products from this manufacturer
in the amount of $14,004,980, or 89% of total purchases, and had related accounts payable of $4,133,501 as of March 31, 2018. For
the nine months ended March 31, 2017, we purchased wireless data products from one manufacturing company in the amount of $27,336,612,
or 97% of total purchases, and had related accounts payable of $6,381,423 as of March 31, 2017. We maintain our cash accounts
with established commercial banks. Such cash deposits exceed the Federal Deposit Insurance Corporation insured limit of $250,000
for each financial institution. However, we do not anticipate any losses on excess deposits. Recently Issued Accounting Pronouncements In July 2015, the Financial
Accounting Standards Board (“FASB”) issued ASU 2015-11, Inventory—Simplifying the Measurement of Inventory. ASU
2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the
market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal and transportation.” ASU 2015-11 was effective for us on July 1,
2017 and was applied prospectively. The adoption of this update did not materially impact the Company's consolidated financial
statements. In March 2016, the FASB
issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which amends existing standards for leases to
increase transparency and comparability among organizations by requiring recognition of lease assets and liabilities on the balance
sheet and requiring disclosure of key information about such arrangements. ASU 2016-02 will be effective for us beginning in our
first quarter of fiscal 2020, and early adoption is permitted. We are currently evaluating the impact of adopting the new standard
on our consolidated financial statements and the timing and presentation of our adoption. In March 2016, the FASB
issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718) (ASU 2016-09), which provides guidance
improvements to employee share-based payment accounting. The standard amends several aspects of current employee share-based payment
accounting including income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement
of cash flows. ASU 2016-09 was effective for us beginning in our first quarter of fiscal 2018. The adoption of this update did
not materially impact the Company's consolidated financial statements given the Company's limited use of stock options. In April 2016, the FASB
issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606) (ASU 2016-10), which amends and
adds clarity to certain aspects of the guidance set forth in the upcoming revenue standard (ASU 2014-09) related to identifying
performance obligations and licensing. In May 2016, the FASB issued Accounting Standards Update No. 2016-11, Revenue Recognition
(Topic 605), which amends and rescinds certain revenue recognition guidance previously released within ASU 2014-09. In May 2016
the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12), which
provides narrow scope improvements and practical expedients related to ASU 2014-09. All of these new standards will be effective
for us concurrently with ASU 2014-09, beginning in our first quarter of fiscal 2019, and early adoption is permitted. We are currently
evaluating the impact of adopting these new standards on our consolidated financial statements. Our implementation approach includes
performing a detailed study of the various types of agreements that we have with our customers and assessing conformity of our
current accounting practices with the new standards. |
